I was quite surprised to see Lowell Kalapa’s column in Civil Beat this week alleging that a bill establishing new estate tax law, now awaiting the governor’s signature, was flawed because “one legislator decided to add a special provision to take care of some unspecified constituent.”
Here’s some of what Kalapa had to say about HB 2328, CD-1, which includes a provision extending an existing tax exemption aimed at encouraging landowners to sell the land under leasehold condominium and coop buildings.
This special provision would extend a capital gains exclusion for the capital gains realized from the sales of the fee interest in leasehold land under multifamily condominiums to associations of apartment owners or residential cooperative corporations. This exclusion had been enacted in the 2007 legislative session and was to have sunset after five years at the end of this calendar year. The provision will extend this exclusion for another five years so it would expire at the end of 2017.
No doubt this part of the bill is designed for a specific constituent who has already had the opportunity to take advantage of the tax preference but didn’t exercise the privilege in the last five years. However, because the provision represents a loss of revenues that might otherwise be realized by the state, it could just jeopardize the survival of the new state inheritance and estate tax measure.
Thus, many taxpayers may be asked to sacrifice because one legislator had to “take care” of a constituent. So much for the greater good of the community.
Perhaps Mr. Kalapa hasn’t been paying attention to the problems of Hawaii condominium and coop owners still living under the cloud of our formerly widespread leasehold system. These owners still face the unhappy prospect of being thrown out of their homes at the expiration of their residential leases, something no one really imagined back when residential leases were seen as a solution to high land prices.
The provision relating to extending the tax exemption on gains from the sale of fee interest in leasehold lands under Hawaii condos and coops is of broad interest and is not limited to a single constituent, as Kalapa so confidently asserts.
This provision originally was found in SB2112. Testimony on that bill indicated there are 16,714 remaining leasehold units, all of which have an interest in this legislation.
And it isn’t just the interests of individual apartment owners that are involved. The committee reports point to the broader public interest, as did testimony from groups like the Hawaii Council of Associations of Apartment Owners, and the Hawaii Association of Realtors.
Your Committee finds that the extension of the tax exemption in this measure will encourage landowners to sell condominium lessees the fee interest in their units, thereby promoting the long-term stability in Hawaii’s condominium housing market and encouraging home ownership.
In any case, it seems to me that Kalapa’s characterization of this provision as a narrow special interest deal by one legislator to favor one constituent is unfair as well as untrue.
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The Honolulu Association of Realtors is nothing but a trade group looking out for their own pocket book.
I’m pretty sure that’s the mission statement of trade groups.
Ian, is the property you own (and recently wrote about) at Century Center held in fee simple or leasehold? i.e. are you a potential beneficiary of this extension?
Yes, we’re in that class of 16,000+ leasehold condo owners.
Hey, do you suppose I was the “specific constituent” Lowell was referring to? Who would have guessed….
There was formerly a law in CC Honolulu forcing the owner of land under leasehold residential condos to sell the fee interest to leaseholders if there were a sufficient number or percentage of leasehold apartment owners (not merely residents but owners) who demanded to purchase the fee. A huge controversy arose when leaseholders at Foster Tower on Waikiki beach (across Kapiolani Park) tried to invoke the law. Landowner, Queen Liliuokalani Childrens Trust, launched a huge political battle to repeal the law, and was successful in getting it repealed several years ago. During the political battle QLCC made numerous propaganda statements about how this land was “sacred”, and had belonged to the Queen, yada-yada; and sent hundreds of Hawaiians to the hearings, some of whom cried on camera about the Queen’s sacred land. But then, earlier this year, QLCC changed its investment strategy and began selling the land after all. So much for “sacred.” And nobody spoke or wept in public about it.
Property owners have always thought they could lease their land for development and then decades later take it back (along with the buildings erected and paid for by leaseholders). They thought they could do that regardless whether the lease was for commercial or for residential development. But it seems that people who build a house, or buy a condo apartment, and live there for a few decades, think they should be allowed to stay in their home and pass it down to their children who grew up there, just as the landowner thinks he should be able to pass down the land to his descendants.
Should the laws for eventual repossession of land be different between commercial vs. residential leases? Maybe it should now be made, and should always have been, illegal to lease land for residential use. Perhaps a landowner who wants to develop residential housing on his land should be required to own the apartments he builds and use them only as rentals, unless he sells the land to the residents as Peter Savio is famous for doing as agent for Bishop Estate. But commercial leaseholders get no sympathy from me. When the lease runs out, let the landowner repossess the land and all the “improvements.” Perhaps the solution for existing leasehold residential properties is this: For each individual lease, let the landowner and the residential leaseholder each write down his last/best settlement offer, and send each case to an arbitrator empowered to choose which of the two offers is the fairer. Both parties would know that if either one writes an outrageous settlement offer, the arbitrator will enforce the other party’s settlement offer; thus they will be encouraged to reach a fair and equitable resolution.
Lowell Kalapa has little interest in fairness or facts. He has an agenda and he pushes it, through his special interest/trade group. Many large landowners and big businesses are members of the Tax Foundation of Hawaii and probably not any of the leasehold condo owners.
And Lowell Kalapa still refuses to file a lobbyist report for decades. Check it out.
If Lowell Kalaoa really wants to hit tax breaks, he should complain about the home interest mortgage deduction. Recommended for repeal by the bi-partisan deficit reduction commission, it has a far bigger impact than any little tax incentivce for the sale of fee interests under leasehold residential property. It’s a complete scam that has ballooned property values beyond the reach of many and is a cash cow for crooked/greedy bankers (pardon the redundancy).
Yes, I support its repeal even though it would affect me directly.
Ohia, on this we agree completely. When I became a homeowner, I was shocked at the size of my tax break. It’s ridiculous and benefits only bankers and realtors. I would happily vote for its repeal. Should we start a PAC?